Stuck at home during the pandemic, people across the world turned in droves to meal kits and their promise of easy, varied and nutritious home-cooked dinners.
But, since the world reopened, the likes of HelloFresh, Gousto and Mindful Chef have had to adapt once again. “We call it the great Covid unwind,” says Giles Humphries, co-founder of UK-based Mindful Chef. “After a period of enormous growth, [there] was a normalisation.”
The company went from £16mn in turnover in 2019 to £67mn in 2021 at peak, according to Companies House filings, and it has “resettled” at around £60mn, adds Humphries — but it now also has the “healthiest” underlying profit margins ever.
Competitors such as Gousto and HelloFresh, which ranked third and sixth respectively in the FT-Statista ranking of Europe’s Long-term Growth Champions, have also had flatter revenues recently, albeit after years of significant growth (Mindful Chef, which is majority-owned by Nestlé, is not included in the ranking as it was founded after 2013).
And it is not just the end of pandemic-era trading patterns that the companies have had to adapt to. Tighter credit markets, more demanding investors and a consumer spending slowdown mean that start-ups and scale-ups in general have increasingly switched their focus to profit, rather than revenue growth.
The largest of the meal-kit companies is HelloFresh, which was founded in 2011 by Dominik Richter, Thomas Griesel, and Jessica Nilsson in Germany to test a new way of cooking meals at home: recipes and ingredients would be delivered in a package every week, removing the need to plan meals and visit supermarkets.
The company has since expanded its offering to include ready meals and a premium pet food brand. Revenues went from €14.2mn in its second year to €7.6bn in 2023 — a pace that means sales almost doubled every year, on average, and has made HelloFresh the market leader in the US.
Last month, however, Christian Gärtner, chief financial officer at the Berlin-based company, told investors that it was “planning for negative growth in meal kits next year, and we’ll see a greater stabilisation thereafter”. HelloFresh also warned that overall revenue growth for this fiscal year would be between 1 and 1.7 per cent — down from its previous expectation of 2-8 per cent, as it seeks to recruit “fewer, but on average more profitable, customers”.
As a result, its shares have shed about 44 per cent of their value over the past year, leaving them only slightly above their listing price from 2017. The company now plans to close one of its three distribution centres in the UK, putting almost 900 jobs at risk. HelloFresh declined to be interviewed for this article.
Smaller rival Gousto was set up in 2012 by Timo Boldt and James Carter, and provides similar meal-kit boxes. Its revenues shot up from £492,000 in 2013 to £309mn last year. But it, too, has had to rationalise its operations — last year it cut about a fifth of its 1,750 workforce.
Despite these recent challenges, the managements of Mindful Chef and Gousto both say they have used the past couple of years to stabilise their businesses and renew their focus on profitability, as well as offering customers more choice.
Humphries and Jim Buckle, Gousto’s finance chief, reject suggestions that recipe kits were a fad that is now in decline. Forecasts suggest they are right: global meal-kit revenue, which remains a small part of the online food market, are expected to increase by $4.9bn to $19.5bn between 2024 and 2028, according to Statista research. In 2018, total revenue stood at $5bn.
“We don’t want to step back from aspirations of growth,” says Buckle, who joined Gousto in 2019. “I’ve seen this in previous roles — businesses grow in phases and, during each phase, you have to go through a maturing and get used to where you are.”
In their quest to improve profits after a period of rapid growth, HelloFresh, Gousto and Mindful Chef have all been spending less on marketing to acquire new customers.
Humphries says that “from a growth perspective, one of the things we’ve done this year, which has worked really well in terms of efficient marketing spend” has been to launch tie-ups with other companies such as Zoe, the healthy eating app, and fast-food chain Leon.
Melanie Bartelme, an associate director at research company Mintel, believes that such “innovation . . . will be necessary to ensure continued interest and market growth”. Meal-kit services could transform more fully from “retail subscription services into online market places”, she suggests.
Buckle says Gousto is automating its operations to manage stock more efficiently, and using artificial intelligence to predict consumer demand better. It is also working on “improving the customer experience and increasing choice so that — whatever your particular dietary requirements, tastes or health needs are — we should be able to meet those for you”.
For example, it is delivering boxes to customers more quickly so they do not have to wait “for days” — no easy task because of the complexity of packing specific fresh ingredients for several recipes in the same box.
Humphries at Mindful Chef, which has boasted healthy recipes from its inception, believes people will increasingly avoid ultra-processed foods, as awareness increases about the health risks they pose later in life, and will opt for meal kits instead.
“During Covid, nothing was more important to people than health, so that meant that we picked up a lot of new customers,” he says. “Health has . . . increased in terms of consumer consciousness.”
He adds that, as consumer confidence picks up, after two years of high inflation and pressure on household finances, “we’re seeing a return to consumers opening up their wallets and spending on services like ourselves”.
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